Markets and Trump

Ian Kernohan

16 November 2016

So far, risk assets have taken a “glass half full” stance on the Trump election victory: they quite like the fiscal stimulus idea and plans for less regulation in certain sectors. Markets are likely to be much more concerned about his trade policies, but for now at least, the feeling is that the impact of any fiscal stimulus will come through faster than any serious rolling back of free trade: naming China as a “currency manipulator” is not the same thing as slapping 45% tariffs on their goods. There is some scepticism that much of his anti-free trade campaign rhetoric will find its way into actual policy, beyond the renegotiation of The North American Free Trade Agreement (NAFTA).

We still expect the US Federal Reserve (Fed) to hike rates in December, but don’t think they can ramp up the pace of hikes materially in 2017, when other central banks are on hold and underlying inflation pressures, including wage pressures, still remain modest. Any fiscal stimulus impact would be more of an issue for 2018 than 2017, so there is some upside risk to our Fed view further out.

So far, risk assets have taken a “glass half full” stance on the Trump election victory: they quite like the fiscal stimulus idea and plans for less regulation in certain sectors. Markets are likely to be much more concerned about his trade policies, but for now at least, the feeling is that the impact of any fiscal stimulus will come through faster than any serious rolling back of free trade: naming China as a “currency manipulator” is not the same thing as slapping 45% tariffs on their goods. There is some scepticism that much of his anti-free trade campaign rhetoric will find its way into actual policy, beyond the renegotiation of The North American Free Trade Agreement (NAFTA).

We still expect the US Federal Reserve (Fed) to hike rates in December, but don’t think they can ramp up the pace of hikes materially in 2017, when other central banks are on hold and underlying inflation pressures, including wage pressures, still remain modest. Any fiscal stimulus impact would be more of an issue for 2018 than 2017, so there is some upside risk to our Fed view further out.

The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.